The idea of life insurance can be an intimidating and make choices about your life insurance can be difficult. There are a few steps to take to begin to analyze the right life insurance plan that will work for you. Certain factors should be analyzed in choosing the right plan of action from your family’s expenses after you pass to how much is left to pay off on your mortgage. The following is a step by step process of how to make decisions regarding your life insurance plan.
1 – What Expenses Will My Family Inherit?
One of the most important factors to consider is how much of your debt or expenses will rollover to your loved ones once you have passed. Student loans are a common debt that gets handed over to someone else if needed. Take into consideration if these loans will be retired upon your death.
2 – How Does Your Mortgage Look?
Paying off a mortgage can be a headache for a family. Even if your family may not pay off the mortgage in the event of your death, consider if the life insurance plan you have selected will give your family the choice to either pay down the monthly payments or invest in the proceeds.
3 – Do You Have Kids?
Keep in mind, if you have children if you have any goals for their financial future. Whether you want to pay for their college education, their first home, or just to help out with them “getting on their financial feet”, keeping that in mind while selecting a plan is definitely something to consider.
4 – The Cash Flow Gap
One of the most difficult factors in the life insurance process is predicting what your family will need once you’re gone. The reason why this is so difficult is that it is hard to predict the future of how much your family will need to survive once you are gone. It is even just difficult to think of your family living on without you let alone allowing them to live without you and financial stress. Ask yourself if your family’s income will change or if their expenses will change once you are going?
Rule of Thumb:
The DIME formula is a great way to take all of this information into the context of your situation. The DIME formula, which stands for Debt, Income, Mortgage, and Education are the four main facets to consider prior to choosing a plan.